Incremental actions for transformative outcomes?

Exploring Fast-Moving Consumer Goods (FMCG) brand owner strategies for a sustainable plastics economy

Authors: Pyry Päivölä & Jaakko Siltaloppi (Aalto)

Today, approximately 25% of all plastics produced are used in packaging, which amounts to a nearly 100 million tonnes annually. The majority of plastics packaging is used in the fast moving consumer goods (FMCG) industry. With growing awareness of the sustainability problems associated with plastics production and consumption, particularly the leakage of plastic waste into the environment, new demands are placed on the FMCG brand owners to increase the sustainability of the plastic packaging value chain.

Our research in the ValueBioMat project suggests that the FMCG industry stands currently at a crossroads. On the one hand, the major companies are faced with new societal and regulatory demands to invest in sustainable material choices and contribute to creation of effective collection and recycling systems for plastic waste. At the same time, however, the brand owners’ investments into sustainable packaging and material circulation offer at most modest commercial rewards. While consumer expectations toward sustainable packaging choices are gradually shifting, they have not yet  translated into mass-market consumer demand to drive industry-wide transformation. Furthermore, the underdeveloped recycling infrastructure as a whole limits the ability of circular raw material and complicates supply chain management for the efficiency-focused brand owners.

As a result, the FMCG brand owners are in a challenging position. While the heart of the brand owners’ business models is the fast-paced delivery of low-cost products that cater to the swiftly moving consumer preferences, they are expected to make significant investments not only in their packaging solutions, but also in the development of the recycling infrastructure. At the same time, as consumers pay little attention to—and quite rarely a premium for—packaging, the brand owners struggle to translate sustainable packaging into strategic advantage in the fiercly competed market.

Yet, withstanding all these challenges, the market leaders place remarkable emphasis on sustainability ambitions and consistently elevate the increased utilization of sustainable plastics to their strategic agenda. In our research, we were interested in the strategies adopted by the FMCG brand owners to advance the transition toward sustainable plastics. Are their claimed commitments to sustainable packaging merely rhetorical tricks, or can their strategies contribute to a rapid, system-wide transformation?

Three key characteristics

Our research identifies that the brand owners seek to improve their environmental performance with an approach we label as competitive sustainability. Focused on balancing short-term profitability with long-term investments in sustainability, this approach has three key characteristics:

  • Adaptive: As the operational environment is shaped by evolving consumer values and attitudes, as well as new regulatory interventions, the brand owners seeking to win in the market need to adapt to these changes in a proactive manner.
  • Incremental: Locked in in their successful operating models geared for scale and efficiency, the brand owners are unwilling to disrupt the existing modus operandi. Instead, the brand owners pursue change through incremental developments that cater to, or comply with, the existing value creation rationale.
  • Conservative: Given that the demand for more sustainable offerings is only just beginning to translate into the mainstream, the brand owners’ pro-sustainability initiatives are characterized by risk aversion. This leads brand owners to pursue initiatives that are manageable in scope and executable within the constraints of the current plastics value chain.
Strategic actions of FMCG brand owners

In practice, the FMCG brand owners pursue sustainable plastics solutions in their value chain through two strategic actions, which meet the characteristics above.

First, the brand owners develop sustainability-focused solutions through limited scale ventures. Referring to development projects specific to one product line, for example, limited scale ventures enable the brand owners to experiment with and learn about recycled materials or new packaging designs in an incremental manner. This course of action enables the brand owners to limit risks related to limited and uncertain material supply, learn together with packaging manufacturers, and test in practice the responsiveness of consumers to new packaging solutions without undermining current profitability and supply chain efficiency.

Second, the brand owners engage in inter-organizational collaboration to drive the development of sustainable packaging solutions and the recycling infrastructure. These collaborations include industry-level initiatives, such as the Ellen Mc Arthur Foundation’s Plastics Pact, as well as dyadic partnerships with packaging manufacturers, recycling companies, retailers, and other stakeholders. The collaborations enable the brand owners to leverage external know-how, distribute the costs and risks of infrastructure development, and align development activities to create effective infrastructures for recycling and circular material use.

Although the competitive sustainability approach is incremental and conservative in nature, we argue that it will play a two-fold role in the system-wide transition toward sustainable plastics economy.

  • First, the limited scale ventures and collaborative initiatives contribute to the gradual, system-wide shift in material use and circulation. Pilot projects establish new templates for structuring value chains around sustainable materials. With increasing raw material availability, competences developed in the pilot projects can be scaled up rapidly to increase the usage of sustainable materials, which, in turn, drives the development of recycling infrastructure.
  • Second, the incremental introduction of new packaging solutions, coupled with joint efforts in awareness raising, contribute to developing market demand for sustainable packaging. As the brand owners closely benchmark one another, sustainable packaging innovations diffuse rapidly in the market and create grounds for the scale-up of sustainable material use in consumer packaging.

As a result, while the FMCG brand owners may not be the sources of pioneering material or recycling innovations, their role is quintessential in accelerating the transition as both co-developers of new packaging solutions and buyers of recycled raw materials. Furthermore, as the brand owners have their finger on the pulse of the consumer markets, they are the players to transform sustainable materials to commercially successful solutions.